It has been almost a year since the Brexit vote. If you read my emails you probably remember I sent out a special one that morning. The reason was because S&P500 futures were down nearly 4% the morning after the vote and there was quite a bit of angst in the media. Part of my job is to provide perspective, be a reminder to clients of investing goals, and answer any questions I can. Also, I took the time to remind people to be an effective investor you need to believe in the future.
The immediate reaction of the market was to pull back and then it quickly recovered. There was quite a bit of money that left European investments initially and moved to safer markets such as the US and Japan. The Bank of England said it would inject money into the economy if it needed to.
Since then the US and European markets have stabilized and seen sizable gains. I am not sure how many people pulled out of the market at that time, but let’s look at what they would have missed. The S&P500 is up nearly 22% since late June. The iShares ETF that tracks the Eurozone has shown even stronger results. It is up almost 40% over the same time period.
I wanted to revisit this topic for two reasons. First, and this is selfish on my part – everyone else will be talking about it in a month. You know how I like to be first! Second, investors continue to pull money out of Europe and are chasing rising dollars in the US market.
Josh Brown of The Reformed Broker had some great data in a recent article of his. 13 of the last 16 months has seen US investors reduce holdings in European ETFs while at the same time they have increased their US ETF holdings. In case you haven’t noticed, US markets are near an all-time high. This means things are very expensive in the US markets currently. Josh also pointed out the average investor has 80% of their equity holdings in US stocks. The US represents only 50% of the global equity market cap. Since 2010 there has been 15 times as much money going into US exchange-traded products as European ones.
My point is multi-faceted today (I just like to use that word). First, when things get a little chaotic in the market make sure you revisit your investment plan. If you don’t have one, well, you may want to develop a plan. Second, these two markets since last June have proven once again why diversification is so important. Please remember that diversification doesn’t work all the time, it works over time. Finally, if you decide to make the dessert I mentioned in the recent email and eat it yourself, well, I know the name of a good bariatric surgeon. Fortunately, I know him personally and not professionally, although I do love that dessert.